Is America really heading once again for the proverbial fiscal cliff on New Year’s Eve, a financial event we are led to believe by the twenty-four hour news networks that quite possibly could send the fragile recovering economy back into a deeper recession or perhaps even a depression? If so, what exactly is the cause, and far more significantly, what will be the consequence if this event were allowed to occur? Article 1, Section 8 of the United States Constitution gives Congress the right to borrow money to pay its legal monetary obligations. Due to the financial emergency caused by the outbreak of World War I, the Second Liberty Bond Act of 1917 was passed in which Congress established a cumulative limit on the total dollar amount of treasury bonds that could be issued by the federal government. Until 2011, whenever the total financial obligation of the United States approached the then current debt limit, Congress would always pass legislation to increase the debt ceiling with little fanfare or debate.
That is, until July of 2011, when all financial hell broke loose as the Republican Party decided to use the debt ceiling debate purely for partisan political purposes by refusing to vote to increase the debt limit unless its demands of massive discretionary spending cuts and the extension of income tax rate cuts passed during 2001 and 2003 were met. These events resulted in Standard & Poor’s downgrading of the credit rating of the United States government for the first time in this nation’s history and in turn resulted in the Dow Jones Industrial Average dropping more than six hundred points in one day, a drop of nearly six percentage points.
Although the Congressional Budget Office has reported that the United States will not reach the current debt ceiling limit until mid-February, January 1, 2013 is being reported as the fiscal cliff target date because on that date the George W. Bush tax cuts, Barack Obama’s temporary payroll tax cut and other economic stimulus measures expire and sequestration is enacted, resulting in an across the board ten percent cut in all federal discretionary spending. The failure of Congress to increase the existing debt ceiling, which currently stands at $16.394 trillion by December 31st would most likely generate a widespread federal government shutdown and result in the United States defaulting on its debt obligations to creditors.
What purpose does this debt ceiling serve if every time it is approached Congress has voted to increase it? In the past ten years, the debt ceiling has been increased by Congress twelve times. Under Presidents George W. Bush and Barack Obama, the national debt has increased a staggering ten trillion dollars, so obviously the debt ceiling does very little, if any to limit our government from going ever more deeply into debt. Are there not far more important pieces of legislation for Congress to debate and pass in these troubling times? This absurd act of gamesmanship by our elected members of Congress is a farce to the financial powers bestowed upon them by our constitution. The Second Liberty Bond Act of 1917 is undoubtedly of little or no value and as such should be immediately rescinded.
Steven H. Spring